Knight Capital held $7 bln of stocks due to glitch - WSJ

August 08, 2012|Reuters

Aug 8 (Reuters) - Knight Capital Group Inc washolding about $7 billion of stocks at one point on Wednesdaylast week due to a software problem that led the brokerage toseek emergency funding, the Wall Street Journal reported, citingpeople familiar with the matter.

Knight tried to minimize its losses arising from a hugetrading shortfall by paring the total position to about $4.6billion by the end of the trading day, the Journal said.

The position led to a $440 million loss that forced Knightto secure a $400 million bailout from a group of independentinvestors in exchange for a 73 percent stake.

The exposure would have prevented the brokerage from openingfor business the next day due to lack of capital required byregulators to offset risks from holding the stocks, thenewspaper reported.

Additional safeguards have been put in place in recent daysto guard against more trades going off-course, according to anote sent to clients sent by Chief Executive Thomas Joyce, theJournal said.

"We are in discussions with external advisers in an effortto effectively assess the situation, in addition to our internalreview," Joyce wrote in the email sent late Tuesday, accordingto the newspaper.

A spokeswoman for Knight also said that the brokerage hadnot reached a decision yet on an outside firm coming in toreview the technology problem that drove the wayward trading,the Journal reported.